EU Clean Industrial Deal: Commitments to competitiveness and decarbonisation

The European Commission (EC) Clean Industrial Deal (CID), published on 26 February 2025, outlines the European Union’s plan to accelerate industrial decarbonisation whilst securing the future of EU manufacturing in the face of high energy costs and fierce global competition. To achieve this delicate balance, the deal focuses on two closely related aspects of the transition: energy-intensive industries and clean tech. The first requires support to decarbonise and electrify. The second, as a driver of economic growth, needs investment to deliver at the necessary scale and speed. 

The CID can be seen as the next phase in the evolution of EU policymaking to drive emissions reductions throughout the EU economy and to ensure energy security, building on the measures set out in the EU Green Deal and the RePowerEU initiatives. However, in light of the current geopolitical landscape, the CID is very focused on the growth of industrial capacity within the EU, alongside the goal of climate neutrality by 2050. The CID particularly tackles “business drivers” such as energy costs and finance and seeks to introduce a framework to help specific sectors “decarbonise, reindustrialise and innovate”. We consider a number of key pillars of the CID below. Please also see our related blog for analysis on proposals relating to State aid and energy. 

Financing 

Significant levels of investment are required to finance the clean transition. The CID takes a three-pronged approach to this challenge, seeking to strengthen EU-level funding; enhance the effectiveness of State aid rules; and leverage private investment.

In the short term, the CID plans to mobilise more than €100 billion to support EU-made clean manufacturing, including an additional €1 billion in guarantees under the current Multiannual Financial Framework (MFF), which governs EU expenditure. In the longer-term, recognising that financial support for clean tech and industrial decarbonisation is complex and fragmented over many programmes, at the next MFF (2028-2034) the EC will introduce a new European Competitiveness Fund to replace multiple financial instruments and simplify access to EU funding. 

In addition, the CID proposes an Industrial Decarbonisation Bank (IDB) aiming for €100 billion in funding derived from the Innovation Fund, parts of the EU’s Emissions Trading Scheme (ETS) and the revision of InvestEU (see below). There are plans for a first pilot auction of €1 billion in 2025 to support carbon emission reduction projects. The auction would be technology-neutral (so available for participation across a range of industrial sectors) and would award support according to emissions reductions, providing additional funding for projects to help bridge the gap to make them economically viable, complementing the ETS carbon price signal. Whilst the design of the IDB is expected to be based on that of the EU Hydrogen Bank, offering both an EU central auction and an "auction-as-a-service" platform for member states, there may be material differences. For example, the CID refers to the use of carbon contracts for difference, suggesting a move away from the fixed premium design of the EU Hydrogen Bank auction.

Separately, to foster support at the member state level, there is recognition of the importance that support schemes and tax incentives play. As a result, the EC also proposes to adopt a new Clean Industrial Deal State Aid Framework to facilitate greater investment in clean tech and industrial decarbonisation (for further details, see our blog post here).

The CID also explores a range of initiatives to leverage private investment. One of the proposed measures is an amendment to the InvestEU Regulation to increase the InvestEU programme’s risk bearing capacity. Operated in cooperation with the European Investment Bank (EIB) and other financial institutions, the InvestEU programme supports investments in priority areas by providing an EU guarantee. The proposed amendment would increase the amount of the guarantee by €2.5 billion, helping to mobilise finance in key areas such as the manufacturing and deployment of clean tech, digital technology, the modernisation of industrial processes, and energy infrastructure projects. The EC also plans to adopt a strategy on a Savings and Investment Union, launching a call for evidence to explore how private capital from EU savers might support investment in EU based industrial decarbonisation and clean tech.

Sector initiatives

The CID envisages increased intervention to support industry, with specific sector initiatives expected. We consider these below. For an overview of the energy sector related proposals, please see our related blog here. 

Heavy industry and manufacturing

As part of the programme put forward in the CID, the EC intends to present “Action Plans” for a range of industries and sectors over the coming months, establishing specific priority actions and longer-term measures for each as they negotiate the clean transition. These include the Automotive Industry (put forward on 5 March), Steel and Metals (to be launched in March), and the Chemicals Industry package (to be adopted in late 2025). The EC is also developing a Sustainable Transport Investment Plan – including renewable and low carbon fuels for aviation and maritime transport – and a Bioeconomy Strategy. 

Strategic and critical raw materials

Strategic and critical raw materials (such as aluminium, copper, lithium, and magnesium) are essential to decarbonisation and clean tech. However, the CID acknowledges that the EU is heavily dependent on a small number of third country suppliers. As a result, as well as prioritising the decision on the first Strategic Projects under the Critical Raw Materials Act to increase EU capacity to extract, process and recycle strategic raw materials, the EC will create a new platform for demand aggregation and a matchmaking mechanism for strategic raw materials. 

As a second step, by the end of 2026, the EC also aims to establish an EUCritical Raw Material Centre to jointly purchase raw materials on behalf of interested companies, to manage strategic stockpiles and support investment in upstream supply. The adoption of a Circular Economy Act in 2026 is also envisaged to ensure efficient use and reuse of materials by enabling free movement of circular products, secondary raw materials, and waste (including measures to encourage recycling of critical raw materials within the EU).

Driving demand for clean products

Recognising the need to stimulate the demand-side for EU-made decarbonised products, the CID envisages that the Industrial Decarbonisation Accelerator Act will increase demand by introducing non-price criteria such as resilience and sustainability to the EU budget, national support programmes and private procurement for energy intensive-industries. The EC is also proposing to revise the Public Procurement Framework in 2026 to allow for these non-price criteria in public procurement for strategic sectors.

Noting that “product labelling for industrial products, accompanied by the right incentives, is a powerful tool to speed-up the transition to decarbonised manufacturing”, the Industrial Decarbonisation Accelerator Act will launch a voluntary carbon intensity label for industrial products, starting with steel in 2025, followed by cement under the Construction Products Regulation. Labelling is intended to ensure manufacturers can capture the “green premium” and generate a return on decarbonisation investments. These measures are intended to complement “the roll-out of the EU’s long-standing objective to create a market for captured carbon”. Related to this, the EC will simplify and harmonise carbon accounting methodologies. Whilst measures supporting the development of carbon capture and storage are not explicitly mentioned, the CID must also be read in the context of the EU’s annual carbon dioxide storage target of at least 50 million tonnes by 2030 set out in the Net-Zero Industry Act.

Finally, to create a level playing field, the CID plans to simplify the Carbon Border Adjustment Mechanism (CBAM), reducing the administrative burden on industries and their supply chains whilst continuing to incentivise global carbon pricing. Measures include introducing a new cumulative minimum threshold of covered goods per importer which is expected to exempt approximately 90% of importers from its scope (see our article for a more in-depth analysis of this and other proposals to streamline sustainability regulation). A full review of CBAM is anticipated in the second half of 2025, assessing its potential extension to additional ETS sectors, downstream products, and indirect emissions. The EC will also review how to address the problem of carbon leakage of goods exported to third countries. This review will be followed by a legislative proposal in the first half of 2026.

Conclusion

With significant spending commitments and a legislative agenda focused on reducing barriers for industry, the CID promises much. However, its success is by no means assured. The development of sector focused plans will be important to target initiatives to different parts of the EU economy and the level of implementation by Member States remains to be seen. However, at a time of geopolitical turbulence, its publication has sent an important and timely signal.